Will every travel company turn into an embedded finance business?

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Hi embedded finance friend

typically, I pre-write my newsletter over the weekend and only put the finishing touches on it on Monday. But thanks to all the viruses a small child brings home when visiting daycare, I had to change plans for this edition. Which means I had to write the whole newsletter on Monday evening. Hopefully, my eyes were not too small when it came to final proofreading :-)

This edition covers

• Will all travel companies turn into fintech businesses?

• French infrastructure providers on the rise

• X announces partnership with Visa

• This is Solaris’ rescue funding and what it means for its investors

• Link section

And now let’s dive in 👇

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Will all travel companies turn into fintech businesses?

What happened: Two travel companies caught my eye this week. Canadian Hopper aims to go public at a USD10 billion valuation at an undefined point in the near future (Bloomberg), and Spanish TravelPerk raised USD200 million and acquired Swiss corporate expense management provider Yokoy (The Paypers).

My comment: Travel has been a hot area for fintech and embedded finance, but these two companies are new to me. At least in the context of Hopper, that’s on me. In 2021, their metamorphosis from travel to fintech has been covered extensively (Skift). Previously, the company was known for its flight price comparison engine and recommended to consumers when it was the right time to purchase that flight ticket. However, with the shift towards fintech, the company added various insurance products, such as price and trip protection offerings. These offerings have increased the average transaction size by USD 40 and, on average, a 55% greater margin. So it sounds like Shopify might soon not be Canada's only major public embedded finance company.

On the other hand, Spanish TravelPerk is a corporate travel solution provider whose primary goal is to simplify and streamline the business travel process. The core product is an all-in-one booking platform, but TravelPerk has launched ancillary services in the past. The acquisition of Yoko is likely the next big step in this regard. TravelPerk describes this well in its LinkedIn post, which explains its goal of combining the worlds of travel booking and expense management. From what I know, TravelPerk already had a strong offering in travel-related expense management, so with the acquisition of Yokoy, I guess TravelPerl also wants to cover non-travel-related expense management items. Since TravelPerk already has a strong connection with many of its corporate customers, it seems logical to aim for a broader usage. But this is sad news for all the banking-as-a-service providers out there hoping to become the provider of choice for a TravelPerk card offering.

French infrastructure providers on the rise

What happened: Last week, two French fintech infrastructure providers announced big funding rounds. Formance announced its USD 21 million round(TechCrunch), and banking-as-a-service provider Swan followed quickly with its USD 44 million round extension (TechCrunch).

My comment: Formance is likely not (yet) a very well-known player in the broader fintech ecosystem, but it has gotten some good attention in the infrastructure space. At the core, Formance offers a ledger solution that helps companies record various money flows and everything that follows that - including reconciliation. By now, Formance describes its offering as a platform solution that can be connected to different payment providers (e.g. Stripe, Adyen, Mangopay) and the Formance infrastructure becomes the middle layer that does not only orchestrate these providers but also becomes the single source of truth for the companies using them. These include fintech companies (e.g., Liberis or Shares) and non-financial brands like appointment booking provider Doctolib or mobility provider Angkas.

On the other hand, Swan is likely a known provider for many of my subscribers. The French banking-as-a-service provider enables fintech and non-financial brands to offer card and/or payment account-related services. While many other banking-as-a-service providers struggle (see further below), Swan seems to be riding a strong wave. This round is declared an extension of their Series B from September 2023, bringing the total round to roughly USD 84 million. Please don’t ask me what the rules are until you can call a round an extension versus a new round, but let’s not split hairs. Swan is one of the few European banking-as-a-service providers that score deals and attention in several European markets (France, Spain, Netherlands and Germany) and, with the fresh money, might be going for more growth. We all know by now that banking-as-a-service providers should not go purely after neo-banks as customers but rather non-financial brands and industry-niche solution providers. So, you can argue that Swan benefits from a second-mover advantage, but its fundraising success still stands out compared to other second-generation providers.

What do you think? Is it a coincidence that the two infrastructure providers with these strong funding announcements this week are from France, or does this tell us something?

X announces partnership with Visa

What happened: X announced its first financial partner to build the financial functionality of its “everything app,” which is no other than Visa (The Paypers).

My comment: Initially, X wanted to launch the ability for its users to transfer funds to other app users in 2024. However, the plan was delayed, most likely because the application for necessary licences in all US states took longer than anticipated. The company promised that these services would be launched later this year, and perhaps to cover the gap until then, it announced its partnership with Visa already.

With this partnership, X will leverage “Visa Direct”, enabling users to instantly fund their X wallet, make peer-to-peer transfers via their existing debit card and transfer funds back to their external bank account (PYMNTS).

Overall, the partnership has received much attention, for my thinking a bit too much. In all fairness, this is just unveiling an infrastructure provider for an upcoming product launch we all knew about already. But I guess the names involved make this at least a bit special.

This is Solaris’ rescue funding and what it means for its investors

What happened: German banking-as-a-service provider Solaris has announced their EUR 140 million funding round (Finextra).

My comment: If you have not followed Solaris’ story in the past few years, you might assume this funding round is a strong signal. Unfortunately, the opposite is the case. Solaris needed fresh money, and because of the size of their operation, it could not be less than 100 million. Solaris was one of the first movers in banking-as-a-service, but with the change from serving neo-banks and pure fintech companies to going after non-financial brands, other providers were more successful. The most recent strategic shift included going after co-branded credit deals, which means competing with banks and not other BaaS providers. These deals move slowly, but speed is crucial for playing the VC-game.

You might remember my latest Solaris coverage, that existing investor SBI Holdings from Japan will likely be the saviour. And they did lead this funding round. But we also knew that other previous investors would need to pay a high price. And now we know exactly how much. When Solaris exists, SBI Holdings will be repaid roughly double what they invested in this and during their previous funding round. The remaining amount will be split 80:20 between investors of this latest round (incl. SBI) and all other investors (a bit simplified; Payment and Banking; German). Sounds like a nice deal for SBI Holdings? Well, time will tell, I guess.

Link section

• French banking-as-a-service provider Treezor has launched a card account selection feature. This feature allows multiple accounts to be connected to the same card. The cardholder can either set predefined rules or manually choose which account should be debited for a specific transaction (Treezor).

• After the “success” of US President Donald Trump’s Meme-Coin, the US president’s team announced that Trump Media is launching its fintech company, Truth FI. The company aims to offer ETF and crypto products (Finextra).